Senate Judiciary holds hearing on online IP infringement, theft

Executives representing Verizon Communications Inc., Go Daddy.com Inc., Rosetta Stone Ltd., The Authors Guild of America and Visa Inc. testified about the impact illegal Web sites have on their businesses and offered their ideas about how new legislation could help curb the problem.

Sen. Patrick Leahy (D-Vt.) led the hearing, which followed the committee’s unanimous vote in November 2010 to approve the Combating Online Infringement and Counterfeits Act. The act’s goal is to combat online infringement and give law enforcement more authority to suspend infringers from profiting from intellectual property theft.

Sen. Chuck Grassley (R-Iowa) said a recent report estimated that counterfeiting and piracy resulted in the loss of 2.5 million jobs, and the global value of counterfeit and pirated goods exceeded $650 billion.

In addition to their economic impact, counterfeit products could pose health risks to unsuspecting consumers who purchase prescription drugs from Web sites that appear to be legitimate. “We have counterfeit products, such as ineffective pharmaceuticals, defective electrical products, tainted toothpaste, malfunctioning equipment, sub-par materials all posing danger to the American consumer,” Grassley said.

Tom Adams, president and chief executive officer of Rosetta Stone, testified that counterfeit goods sold online not only cost his company millions of dollars in profits but also tarnish his brand’s name when people purchase a fake product. Rosetta Stone produces software that teaches users new languages.

Adams showed the committee examples of the fake Web sites with domain names that include the company’s name even though they aren’t officially associated with Rosetta Stone. These sites appear when consumers use search engines such as Google Inc. to find the official Rosetta Stone site.

The issue is also the subject of ongoing litigation. In 2009, Rosetta Stone sued Google over its keyword advertising practices, which allow advertisers to use other companies' trademarks to trigger advertisements in Web searches. In August, U.S. District Judge Gerald Lee of the Eastern District of Virginia ruled in favor of Google, granting summary judgment. Rosetta Stone is appealing.

Christine Jones, executive vice-president, general counsel, and corporate secretary for The Go Daddy Group, testified that her company has found resistance when trying to work with search engine companies to encourage them to “stop selling products to bad guys,” she said.

Sen. Tom Coburn (R-Okla.) said executives from Google and Yahoo! Inc. were invited to the hearing but declined to appear before the committee. He plans to send a letter to Google to subpoena them to answer questions about their role in preventing online piracy.

“I would note to both of those companies there will be legislation, and it would have been helpful to have their testimony here as we prepare for it. We’ll have the legislation one way or another,” Leahy said.

Jones called for targeted, narrow legislation to help stop fraudulent companies from profiting by advertising and collecting payment for piracy.

“I don’t think we can really make progress on this until we have cooperation from what we call all of the ‘big five’ players. That would be domain name registrars, hosting service providers, payment card processors, Internet service providers and online advertising providers. Without proper effort from all of these players, the criminals that Go Daddy works hard to take offline everyday will come back almost certainly as customers of one of our more lax competitors,” she said.

Scott Turow, president of the Authors Guild, called the process of sending letters to each fake Web site as it pops up as “a Whack-a-Mole game.”

Sen. Richard Blumenthal (D-Conn.) said the process of taking down a Web site only for it to reappear seems like an insufficient deterrent against the rogue Web sites. “An effective enforcement mechanism is absolutely necessary,” he said.

Leahy intends to introduce legislation this Congress.

“If you have someone breaking into a warehouse and stealing a few hundred thousand dollars worth if items, you’d want to get after that. You have these people stealing millions and billions of dollars…inaction is not an option. We have to pass infringement legislation this Congress before rogue Web sites harm more business, and result in more lost jobs. What they do is theft, pure and simple,” Leahy said.